Black Friday 1869

Today, Black Friday has many meanings, such as the day when retailers offer the biggest sales of the year. In the past, however, Black Friday referred to disasters, such as incidents of violence or widespread financial catastrophe. The first day known as Black Friday occurred in the United States on September 24 of 1869, when the price of gold plummeted, resulting in the financial ruin of a large number of investors. This event was also called the Fisk & Gould scandal, in honor of the speculators who brought about the financial panic. It was one of most damaging scandals that occurred during the eight year presidency of Ulysses S. Grant.

The Cause

During the United States Civil War, both the Union and Confederate governments resorted to financing the war effort by using fiat currency. Fiat currency is defined as a currency that is not backed by precious metals, such as a nation's gold or silver reserves. When the Union won the war, the economy was dominated by greenback dollars, whose value would fluctuate. At the end of the war it took 300 greenback dollars to purchase an ounce of gold, but by 1869, it only cost 130 greenbacks per ounce. Certain investors discovered that by buying gold, they could create an increased demand for it, thus driving up its price. This is called speculation, and it is what eventually led to the gold panic of 1869.

Who Was Involved

A railroad tycoon and financial speculator named Jay Gould discovered that it was possible to manipulate the United States Treasury, which had previously increased the supply of gold in the market to counter the increased demand and drive down its price. His scheme was to find out exactly when the Treasury would react to rising gold prices, so he could sell off his gold before its price fell from its highest point. A fellow financier named James 'Jim' Fisk entered a partnership with Jay Gould to speculate on gold. They recruited another financier named Abel Corbin, who was married to Virginia Grant, the sister of President Grant. Corbin influenced President Grant to select former Union Army General Daniel Butterfield as assistant United States Treasurer. Since it was Butterfield's job to manage the buying and selling of gold by the government, it enabled him to warn the speculators if the government planned to sell gold. The arrangement called for Butterfield to provide advance notice of a government sell-off in exchange for percentage of the profits.

What Happened

Abel Corbin attempted to influence President Grant by talking to him directly about avoiding future government actions in the gold market. It appeared, after their conversations, that President Grant had agreed not to sell gold if prices were to spike. With Butterfield in place to warn Gould and Fisk in case a big sale of gold did happen, they started to purchase gold in a major speculative drive in late September. Gold rose from an average price of 135 greenbacks per ounce to 162 per ounce on September 24. Meanwhile, however, President Grant discovered his wife Julia writing a letter to his sister Virginia, in which she mentioned Gould and Fisk's plot. Grant, now aware of the scheme in progress, ordered the Treasury to sell $4 million of gold into the market. In addition he instructed his wife to finish her letter with a warning to Abel Corbin to stop the speculation activity. Jay Gould learned of the wording of Julia's letter to Corbin and started selling, while his partner Jim Fisk propped up the price by making purchases he later managed to rescind. On September 24, the same day that the price of gold had risen so rapidly, the price of gold collapsed from 162 an ounce to 133 an ounce in only a matter of minutes. This drop in prices resulted in the day being called Black Friday.

The Consequences

According to some reports, Jay Gould made as much as $15 million in profit from the scandal. Jim Fisk avoided financial ruin by using legal maneuvers to back out of his gold purchases. Abel Corbin, however, was bankrupted by the loans he took out for this ill-fated venture. Many other investors and whole brokerages were financially ruined by the wild swings in the price of gold, and the stock market dropped by 20%. The damage echoed even further than Wall Street, as the price of crops dropped by half, ruining many farmers. Fisk and Gould managed to protect themselves from legal consequences with their team of skilled attorneys, however a Congressional investigation forced Butterfield to resign from his post. The scandal entangled President Grant because of his known connections with Fisk and Gould. Jay Gould went on to become a railroad tycoon, while Jim Fisk was murdered three years later by a man named Edward Stokes.

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